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Narrow-moat Want Want China’s fiscal 2023 (ending March 31, 2024) revenue and net income were below our estimates, but we observed constructive results in management’s channel execution and product development. We also see potential for the company to expand its presence in overseas markets. We think these could help Want Want to achieve higher long-term growth and thus forecast a fiscal 2024-28 sales CAGR of 3.9%, versus 3.1% during fiscal 2023-27. Our fiscal 2024-27 net profits are also increased by 4% to 8%. Consequently, we lift our fair value estimate to HKD 6.40 per share, from HKD 6.00, which implies 15 times fiscal 2024 price/earnings, 10 times EV/EBITDA, and a 5.1% dividend yield. We reiterate our view that shares are undervalued now as we think management’s execution could help the company to navigate through the current adverse operating environment.

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Want Want China derives revenue and profit mainly through a few flagship packaged food and beverage products that it developed decades ago, including Hot-Kid milk, sugar-coated rice crackers, savory senbei and QQ candies. The company’s products have particularly been popular among children. Margins are maximized through scaling these flagships with its nationwide offline distribution channel. Leveraging on its brand and the vast distribution network, the company has been able to achieve higher levels of gross profit and operating margin compared with domestic peers, with the majority of earnings distributed to shareholders.
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Barratt Developments is the UK’s largest homebuilder in terms of both revenue and dwelling completions. It aims to distinguish itself from UK peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson, and Barratt London—which consistently garner more awards than peer UK homebuilders for build quality and customer satisfaction from the UK’s National House-Building Council.
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Illumina aims to transform human health practices through its leadership of genomic sequencing and related applications. The firm provides a broad range of instruments and related consumables to help researchers and clinicians identify and understand genetic variations. The scale of these projects can be wide, such as population genomic initiatives being pursued in many countries, or narrow, such as noninvasive prenatal screening. We believe Illumina will continue to benefit from the rapidly expanding applications of genomic sequencing tools through its own innovation and select acquisitions.
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Carrefour provides exposure to global food retail with a high European weighting, mostly in the mature and competitive western part of the continent: France, Spain, Italy, and Belgium. However, it is highly exposed to the large hypermarket format, which is in structural decline in mature markets. This is because of consumer behaviour shifts and demographic trends (less waste, lower family formation rates, smaller families), which have contributed to the structural growth of convenience over one-stop shops, with shoppers preferring more frequent shopping trips and smaller baskets.
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We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe and the nascent roll out of Taco Bell stores in Australia, we expect Collins' Australian KFC network will continue to drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with over 270 restaurants out of a total of around 730 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.
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After expanding its operations to many European and Latin American countries during the 1990s and 2000s, Telefonica has turned around its strategy in recent years to focus on four key markets: Spain, the United Kingdom, Germany, and Brazil. Telefonica is divesting or restructuring its Latin American operations (except Brazil) and infrastructure assets such as towers or noncore fiber networks and intends to use the proceeds to reduce debt, a strategy we look favorably upon.
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In 2018, the former Primary Healthcare rebranded itself as Healius to signify the strategic turnaround underway. Healius is looking to new sources of strategic growth as well as dealing with prior underinvestment in infrastructure. There is much to fix in the business and we anticipate it to take a few years before significant margin improvements are made in the base pathology and imaging businesses. Healius selling its medical centers and Montserrat day hospitals to focus on redirecting capital toward infrastructure upgrades and its diagnostic businesses is viewed as a positive strategic step.
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Vestas will be a beneficiary of the transition to wind energy as all their profits are derived from the sale and servicing of wind turbines. Wind energy is an optimal energy source to transition to thanks to its environmental, financial and ability to provide energy independence. However, several challenges are impeding its adoption of renewable energy adoption, which includes higher interest rates and cost inflation. Vestas enjoys a leading position in the onshore wind turbine market and is improving its competitiveness in faster-growing offshore wind.
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China Gas Holdings, or CGH, is involved in the wholesale and retail businesses of natural gas and liquefied petroleum gas, or LPG, in China. The firm benefits from exclusive city gas concession rights and efficient scale. In the past, CGH aggressively expanded into rural city gas projects, resulting in a stretched balance sheet compared with its peers. The firm now focuses on the asset-light value-added services, and integrated energy businesses.
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Metcash dominates the Australian wholesale distribution of packaged groceries to the independent retailer. From the small corner shop to the local independent supermarket, Metcash acts as a co-operative, funneling independent sales volume through a single channel to derive buying power to negotiate volume discounts with manufacturers. Metcash is the fourth force in the grocery industry, with around 10% market share via its IGA banner network, while Woolworths and Coles combined account for about two thirds of Australian food retailing, and Aldi also commands a comparable market share of around 10%.
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Airbus primarily generates revenue by manufacturing commercial aircraft. It benefits immensely from being in a duopoly with Boeing in the market for aircraft 130 seats and up; the companies act as a funnel through which practically all such commercial aircraft demand must flow. This allows both companies to actively manage their order backlogs to reduce cyclicality, despite the intense cyclicality of their customer base.
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Sky is the only set-top box-based pay-television provider in New Zealand, with a satellite distribution platform covering the whole country. It has a grip on key content (especially sports), and its large subscriber base was relatively sticky until fiscal 2015, given limited home entertainment options.
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UL Solutions is a global leader in the testing, inspection, and certification, or TIC, industry. The TIC industry is highly fragmented, with thousands of smaller players operating locally or in niche fields. Additionally, some manufacturers choose to insource TIC requirements. Over time, we expect the outsourced product TIC market to grow faster than the global TIC market as companies look to outsourcing to control costs and respond quickly to new regulations.
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Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the US market's increased move to light trucks—where Honda's lineup is not as complete as competitors'—may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive US market, and rising input costs for Honda and suppliers.
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Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The firm operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.
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Curaleaf cultivates and sells cannabis in the US with a presence in 17 states. Vertically integrated, Curaleaf produces through 18 cultivation sites and sells directly through 145 dispensaries and wholesale to other dispensaries. Compared with other multistate operators, Curaleaf has generally employed a more aggressive growth strategy, which hasn't always paid off, leading to exits and sales.
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Green Thumb Industries cultivates and sells medicinal and recreational cannabis through wholesale and retail channels in the US. Unlike its Canadian peers, the firm is more vertically integrated, as it owns dispensaries in addition to the cultivation and processing of value-added products. It has a presence in 14 states through 20 production facilities, and 92 dispensaries. In states with more mature cannabis markets, Green Thumb believes there are enough cultivators available and purchases cannabis from third parties. This helps reduce capital intensity for expansion without sacrificing exposure to widening legalization.
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Scor is a large reinsurance company headquartered in Paris. It operates in over 100 countries, serving many clients from offices worldwide that are connected through a backbone network of application, data, and exchange systems. This allows local access to centralized risk analysis, underwriting or pricing databases, and at the same time allowing information on local market conditions to be shared among the group’s worldwide offices. In addition, through regular exchanges of personnel between group headquarters in Paris and its non-French subsidiaries and branch offices, the group encourages professional development and training across its various geographic markets and lines of business. We think in the case of Scor, investments in risk-analysis, underwriting, and pricing haven’t been good for shareholders. That is because returns on equity have remained anemic.
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Telecom Italia, or TIM, is the incumbent in the extremely competitive Italian telecommunications market. Since the entrance of Iliad in the mobile market in 2018, the Italian mobile market has become irrational, with extreme discounts that do not allow operators to earn their cost of capital. Iliad and mobile virtual operators own almost 30% of the mobile market, and players like TIM and Vodafone have seen their top lines decline substantially, pressured by customer losses and lower pricing. Average revenue per user is one of the lowest in Europe, and once market stability is broken, prices never recover.
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As a pure-play water provider, Primo Water has built a solid product portfolio and manufacturing and distribution footprint to tap rising demand for better-quality drinking water in North America. However, we remain skeptical that the firm benefits from any durable competitive edge based on brand intangibles or cost advantages, given the lack of differentiation and intense local competition in the water category.

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